Chapter 3 Meiners, Ringleb & Edwards The Legal Environment of Business, 12 th Edition

Chapter 3Meiners, Ringleb & EdwardsThe Legal Environment of Business, 12th Edition Trials and Resolving Disputes

Chapter Issues • Basic Trial Procedures • Procedures and Processes of Litigating a Dispute • Remedies in Civil Litigation • Appellate Stage • Enforcement Stage • Alternative Dispute Resolution (ADR) • Arbitration • Negotiation-Settlement • Mediation

The Judicial System • The court system is adversarial in nature. • Parties have the responsibility for bringing a lawsuit, shaping issues and presenting evidence. • Lawyers represent the parties’ claims. • Judges don’t investigate. • Court applies legal rules to facts presented. • Trials are often costly and uncertain. • Complex facts, extensive evidence, mountains of business records involved. • Juries tend to be less sympathetic to businesses

Basic Trial Procedures • Pleading Stage • Discovery Stage • Pretrial Stage • Trial Stage • Appellate Stage • Enforcement Stage • SeeExhibit 3.2

The Pleadings Stage • Formal statements made to the court by the parties • Jurisdiction needed over subject matter & parties • Notice given of lawsuit by service of process through summons • Complaint • Alleges facts for jurisdiction & remedy/remedies • Requests remedy(ies) • Responses to Complaint • Motion to Dismiss (Demurrer) • By defendant • Answer (may include affirmative defenses – usually by defendant) • Counterclaim • Reply • See Exhibit 3.1 (Casino owner pokes a hole in a Picasso, and sues Lloyds of London for compensation for losses under his insurance policy with them.)

Purpose of Discovery (Legal Tools to Obtain Evidence) • Rules of Civil Procedure set guidelines & limits to the process • Purposes to (1) preserve evidence, (2) limit element of surprise, (3) encourage settlement • Depositions of parties and witnesses (including experts) – sometimes videotaped • Interrogatories of the parties • Use of Expert Witnesses • Requests for Admissions • Orders of Production of Documents • Physical/Mental Examinations • Impacts on business – expensive & time-consuming • Court may sanction a party who fails to comply with discovery requirements . • Default Judgment • Contempt of court (fines, pay costs to the other party)

CaseBarabin v. AstenJohnson, Inc. • Henry Barabin was exposed to asbestos from 1964-1984. • Mostly worked at a paper mill that used dryer felts containing asbestos • Suppler was AstenJohnson • In 2006 Barabin was diagnosed with rare lung cancer; cause was exposure to asbestos • He sued • AstenJohnson moved to exclude expert testimony of Barabin’s Dr. Cohen because he had “dubious credentials and his lack of expertise with regard to dryer felts and paper mills.” • District Court chose not to hold a Daubert hearing to determine if Cohen was qualified expert • Jury was to determine if Cohen’s testimony was credible • Jury found for Barabin • Awarded damages of $10,200,000 • AstenJohnson appealed. (Continued)

CaseBarabin v. AstenJohnson, Inc. • District court determines relevance and reliability of expert testimony • Admission or exclusion under Daubert rests on scientific reliability/relevance of expert testimony • Expert’s opinion must be deduced from a “scientific method” to be admissible • Test under Daubert is not correctness of expert’s conclusions: • Rather the “soundness of expert’s methodology” • Factors in assessing reliability of expert testimony: • (1) whether scientific theory/technique can be (has been) tested • (2) whether theory/technique has been subjected to peer review & publication • (3) whether there is a known or potential error rate, and • (4) whether the theory/technique is generally accepted in the relevant scientific community • HELD: District erred. New Trial is provided. • Because no Daubert hearing was conducted, District Court failed to assess if Dr. Cohen applied scientific methodologies, reasoning or principles • Court merely allowed parties to submit experts’ unfiltered testimony to the jury • District court abused discretion when denying AstenJohnson’s motions for new trial

International Prospective“BRITISH COURTROOM PROCEDURE” • Both British & U.S. court proceedings based on adversarial model • However, significant differences in the implementation of the model • British bar divides into solicitors and barristers • Solicitors handle advising commercial and private clients on business/property matters • Barristers do mostly litigation • Much more specialization in the U.S. than in the British system • British Courts: “a more civil & cooperative atmosphere” than the U.S. • Barristers don’t walk around the court while questioning witnesses • In UK, most objections re: evidence raised outside the presence of the jury – resolved before the witness is called • Barristers rely on judge to object to evidence • Jury in Britain sees continuous flow of information and less maneuverings by attorneys as in the U.S. • At end of evidence, in British court, judge summarizes evidence for the jury. • In U.S. judges do not discuss evidence with jury. (Continued)

International Prospective“BRITISH COURTROOM PROCEDURE” • Order of trial is different • In UK defense starts the opening statement at the end of the plaintiff’s/prosecution’s evidence • Some say British trials are superior • Others worry re: active role the judge takes • Concern that one party is prejudiced by judge’ non-verbal behavior (sighing, frowning, etc.) • U.S. Court of Appeals have actually overturned trial verdicts based on such a judge’s behavior. • General agreement from social science experiment of tapes of trials shown to people: • Shown trials conducted under U.S. and UK rules • UK version more civil & view judge more positively than in the U.S. • However participants still prefer the U.S. procedure overall

Pretrial Stage • Summary Judgment – either party may request • Judge renders it • Pretrial Conference – either party or court may request • Usually attorneys and judge attend • Simplify issues • Plan course of the trial • Judges get parties to drop certain parts of case • Helps to focus on key issues • Judges often encourage parties to reach out-of-court settlement • See “Test Yourself”

Jury Selection • 6th and 7th Amendments gives right toa jury in certain cases • If no use of jury, judge becomes trier of fact • Selection of jury involves voir dire • Attorneys allowed limited number of challenges to reject prospective jurors without stating reason – peremptory challenges • Usually 12 persons on jury panel • Some states have fewer – such as 6 jurors

Trial Stage • Opening Statements by attorneys • Presentation of Direct Testimony • Direct Examination, Cross Examination, Redirect Examination, Re-Cross Examination • Closing arguments • Instructions to Jury (also called charges) • Verdict by jury. Judgment may be set aside for jury misconduct. • Example: Juror in Florida used Facebook to friend a defendant in a personal-injury case • Juror was sentenced 3 days in jail • Example: Murder conviction in Arkansas thrown out • Juror tweeted information about trial despite warning by judge not do • Motions For A Verdict • Motion For A Directed Verdict/Motion For Judgment As A Matter of Law/Judgment on the Pleadings • Cases have been presented, but before going to jury, either party requests entering judgment in its favor • Motion for Judgment As A Matter of Law/Motion For Judgment Notwithstanding the Verdict (N.O.V.)

Remedies in Civil Litigation(See Exhibit 3.4) • Monetary damages • Compensatory • Punitive or exemplary • Nominal • SeeNaples v. Keystone Case • SeePre-Paid Legal Services, Inc. v. Cahill • Equitable remedies • Specific performance • Injunction • Permanent • Temporary • Preliminary

CaseNaples v. Keystone Building and Development Corp. • The Naples contracted with Keystone to build their new home. • Work was warranted. Cost was $620,000. • Major problems occurred soon after they moved in. • Crews were sent several times to do repair work. • Problems continued • Expert, Dykins, was hired to evaluate the home. Said extensive work would be needed. • Estimated costs of repairs: $113,511 + painting for $15, 819. • Naples sued Keystone for the amount. • Trial court held for the Naples, awarding them only $59,140. • Stated that a higher damage figure had “not been established with a sufficient degree of certainty.” • Naples appealed. (Continued)

CaseNaples v. Keystone Building and Development Corp. • General rule: Place the party entitled to compensation in position it would have been if there had been no breach • In unfinished construction damages are measured by • (1) Reasonable cost of construction & completion, if this does not involve “unreasonable economic waste” OR • (2) Difference between value contracted for and value of performance that was received (without involving “unreasonable economic waste”) • Repairs, however, may not result in improvements on the property – as such repairs would be above the work that was warranted. • The court did not point to conflicting evidence or explanation why it elected to discredit some portions of the estimate (trim, siding + repair & paint portions of interior) while accepting others verbatim. • Trial court’s award was therefore illogical. • HELD: Trial court was in error. • New trial ordered and limited to issue damages to compensate plaintiffs adequately.

CasePre-Paid Legal Services, Inc. v. Cahill • Pre-Paid Legal Services, Inc. (PPLSI) sells legal service plans. Members pay a monthly fee • May call a toll-free number to be connected to law firms that contracted with PPLSI • Firms provide free or discounted legal assistance • Cahill was a successful sales rep. for PPLSI – rose to a senior position • Had access to sales records of all representatives • Knew the top performers in the country • Signed an agreement with PPLSI prohibiting use of such information outside PPLSI • Cahill met with top sales associates, including Cabradilla. • Told them he was going to work with another company, Nerium • Wanted the sales associates to come with him • Cahill resigned; posted material about Nerium on PPLSI private website • Posting seen only by top sales associates • Cahill’s access to PPLSI materials & websites was terminated • PPLSI sued Cahill for breach of contract and in tort. • It would be some time before dispute would go to arbitration & PPLSI requested the court to issue a preliminary injunction • Injunction would prohibit Cahill from exploiting information he had learned from PPLSI • Magistrate Judge reviewed request, issued a report & recommendation to be reviewed by the District Judge (Continued)

CasePre-Paid Legal Services, Inc. v. Cahill • CASE DECISION: Preliminary Injunction is extraordinary remedy – exception rather than the rule • Purpose of preliminary injunction is to preserve status quo – pending outcome of the case • In order for court to grant this kind of injunction, request must meet 4-part test. Requesting party must demonstrate • (1) there is a substantial likelihood it will prevail on the merits of case; • (2) it will suffer irreparable harm unless injunction is issued; • (3) the threatened injury outweighs the harm the injunction might cause the opposing party; AND • (4) preliminary injunction if issued will not adversely affect he public interest • If Cahill is permitted to breach the non-solicitation agreement, PPLSI will suffer irreparable harm • Cahill continued to send text messages to Cabradilla after he rejected his offer to go to Nerium PLUS engaged in another multi-level marketing company • Defendant will need to recruit sales associates to Nerium shows PPLSI faces “significant risk” that Cahill will solicit PPLSI associations if not enjoined from contacting them • Harm to Cahill being enjoined is minimal • He can still recruit sales associates to Nerium & build his business • Only restriction Cahill will face is that he abides by the contract provisions that he agreedto when he started with PPLSI • Public interest is promoted through enforcement of valid contracts • HELD: PPLSI has satisfied the four requirements • HELD: Preliminary injunction should be issued barring Cahill contacting PPLSI sales associates for them to join Nerium • HELD: PPLSI entitled to preliminary injunction until issues can be presented to arbitrators

Appellate Stage (Appeal Based on Error of Law) • Arguments before the court • Written Briefs • Oral Arguments • Decisions by the court • Majority opinion • Concurring opinions • Dissenting opinions • Outcomes of decisions • Affirmed • Modified • Reversed • Remanded • See “German Trial Procedure” re: a different country’s system

Enforcing Judgments • If no further appeal is available, judgment becomes final • It is res judicata • Enforcement of judgment is through writ of execution • Court orders an official (i.e. sheriff) to satisfy judgment through an act (such as seizure of property, garnishment, etc.) • A complexity that causes parties to look for alternative dispute resolution • In U.S. each side usually responsible for own costs • Not in Britain – loser usually pays winner’s legal costs

International Perspective“GERMAN TRIAL PROCEDURE” • In Germany judges play a more active role in trial process than U.S. judges • Civil procedure is governed by rules called the Zivilprozessordnung (ZPO) • In U.S. judge’s role usually limited to applying law to facts of the case • In Germany: • Judge decides the facts of the case, then applies law to facts • Judge, not lawyers, decides which witnesses to call • Judge, not lawyers, interrogates witnesses and records their testimony • Judges may ask questions only about evidence that parties to the case present themselves • What is presented is more limited than typical presentation at U.S. trials • German courts want to protect many more confidential relationships than do U.S. courts

Arbitration • Most widely recognized form of ADR • Usually results are faster in resolution of matters • 3rd neutral party or panel (usually expert) is arbitratoror arbiter • Parties agree upon this ADR in the contract or during a later dispute • Federal Arbitration Act (FAA) states agreement to arbitrate must be upheld • Arbitrator’s decision is binding • Arbitration decision is final and matter usually cannot be litigated again or appealed • Usual rule: No right to go to trial (parties to the dispute give up this right) • Appeals from these decisions are very specific and limited. • Thousands of international disputes go to arbitration each year • Uniform Arbitration Act (UAA) upholds the integrity of this process

The Arbitration Agreement • Decided at time of making the contract or after dispute arises • Begins when party files a submission • Parties agree on arbitrator(s) • The hearing procedure • Closed door • Less restrictive procedural and evidentiary rules than a trial court • Procedures include on-line arbitration • Arbitration associations have rules that guide participants/arbitrators • Good faith cooperation • Voluntary and prompt exchange of documents • Uncooperative parties may be required to pay fees and compensation by arbitrator • Arbitrators are usually attorneys, but need not be – often are experts in a field • The award(decision) • Usually given in writing within 30 days of close of arbitration hearing • Arbitrators have broad powers to decide remedies • Appealing the award • Attacks on arbitrators are rarely successful • Errors of fact or law are usually not reviewable • Grounds for overturning appeal: fraud, partiality, serious procedural misconduct, excessive use of power by arbitrator • Arbitrators have wide latitude in awards • Generally arbitration award is final

Cyber Law“INTERNATIONAL ARBITRATION AND MEDIATION OF DOMAIN NAME DISPUTES” • World Intellectual Property Organization (WIPO) in Geneva establishes international rules for trademarks and other forms of intellectual property • WIPO has domain name resolution service to protect domains (i.e. .mx for Mexico and .edu for education) • WIPO has a Uniform Domain Name Dispute Resolution Policy (UDRP) dealing with such problems as “cybersquatting” • Parties go to Arbitration and Mediation Center where experts handle disputes • Fees are assessed • If 1-5 names included in a complaint -- $1,500 • If 3 panelists are requested -- $3,000 • Over 1,000 disputes/year submitted to the Center

Negotiation • Least formal form of ADR • Parties decide to settle matter between themselves • Often use lawyers or representatives, though not required • Lawyers, etc. are agents of the parties of the dispute • Negotiated settlement is usually a contract, which is enforceable, like other contracts, by the courts

Stages of Negotiation • Stage 1: Study issues and information • Stage 2: Exchange of information • Different styles: i.e.“tough guy” vs. “problem solver” • Stage 3: Work your strategy • Usually involves compromise • Stage 4: Agreement is reached; usually a contract is written • Policy of the courts is to enforce negotiated settlements

Mediation • 3rd neutral person (mediator) assists the parties of the dispute • Parties mutually decide on a resolution • Mediator makes suggestions • Mediator’s suggestions are NOT BINDING on the parties • Parties may go to trial after this ADR • Mediation often helps to maintain the relationship between the parties • Mediation also involves labor disputes and marital disputes

The Mediator • Some states have no requirements at law, but many states are moving toward some licensing • Most people prefer a trained or experienced person • Usually parties agree to maintain confidentiality • If no requirements, the mediator may be the choice of the parties • If mediator fails to act professionally, may be subject to liability to one of the parties

The Mediation Process • Mediator collects information, outlines key issues, listens, asks questions, observes the parties, discusses options, and encourages compromise • Mediator often helps to draft the settlement agreement • The settlement agreement is enforceable in court • Mediator may assist in deciding the confidentiality of the case • If confidentiality is agreed upon, nothing can be said in public • Information revealed during negotiation or mediation should not be used as evidence if the dispute goes to a later trial

Chapter 3 Meiners, Ringleb & Edwards The Legal Environment of Business, 12 th Edition